• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Nath Balakrishnan

INVESTORS can retain their holdings of Shasun Chemicals. The stock has run up considerably over the past four months, in sync with other stocks from the mid-cap pharma brigade. Any decline in price levels linked to broad market movements can be used to contemplate fresh exposures. Shasun promises to emerge as a major supplier of active pharmaceutical ingredients (APIs, which are also referred to as bulk drugs) to both the innovator and generic manufacturers.

Financial snapshot: For the just-concluded quarter, sales rose 16 per cent to Rs 66.8 crore over the corresponding previous period. Importantly, there was substantial expansion in operating margins, which, for the latest quarter, stood at 18.2 per cent (14.6 per cent in the corresponding previous quarter ). This expansion was achieved on the back of savings in raw material costs, which, as a percentage of sales, was 49 per cent for the latest quarter (54.5 per cent on a comparable basis).

In spite of higher charges towards depreciation and a higher tax outgo, net profit at Rs 4.9 crore registered a 76 per cent increase on a year-on-year basis.

Business outlook: Shasun has forged a strong relationship with global majors such as Eli Lilly, Pfizer and Glaxo for the supply of bulk drugs and to undertake contract research. As it would involve the supply of bulk/intermediates for formulations that are still under patent, realisations would tend to be much higher than in the case of generics. Alliances with companies such as Austin Chemicals and Eastman Chemicals should only serve to make further inroads into the US market.

Shasun's focus on supplying APIs for on-patent formulations is not at the exclusion of the generic manufacturers either. Teva, an Israeli generic major, has filed a Para IV patent challenge on a blockbuster painkiller on the basis of Shasun's API. Should Teva successfully challenge the patent, there could be substantial upside for Shasun.

Even in the case of other molecules going off patent, generic players would be more comfortable sourcing APIs from those bulk drug outfits, that, apart from possessing the requisite technical expertise, are unlikely to challenge them with their own knock-off version of the molecule. Companies such as Shasun are well-positioned on this score.

Valuations: At the current price, Shasun trades at about 15 times its trailing four-quarter earnings per share. Though this is at a premium to its peers such as Matrix Labs (though the valuation is at a discount to that commanded by Divi's Laboratories), the strength of Shasun's relationship with key pharma majors is a significant advantage. Stay invested and contemplate buying on declines.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Unit-linked insurance plans — The honey and the sting

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line